MNI US MARKETS ANALYSIS - USD Edges Lower Ahead of Powell

Highlights:

• Fed Chair Powell's speech at Jackson Hole takes focus at 10:00 ET
• BoE's Bailey will also be making an appearance 
• USD weaker ahead of the key risk events; NZD, AUD outperform 

MNI JACKSON HOLE PREVIEW: August 2024

At Jackson Hole, Fed Chair Powell is expected to reiterate his July press conference message that a rate cut "could be on the table as soon as September", thus aligning with market pricing for easing at least 25bp at the next meeting. Expect him to emphasize that the progress made on inflation and rising risks to the employment side of the Fed's dual mandate warrant dialling back the restrictiveness of monetary policy. He may tie this into the theme of the Symposium by arguing that the lagged impact of earlier tightening is finally being seen more convincingly. While he's unlikely to deviate from the script too much - emphasizing data dependence and a meeting-by-meeting approach - any reference to the envisaged tempo of cuts or the eventual destination for rates would be market-moving. Jackson Hole schedule here. 

US TSYS: Little Change on the Day With Powell Firmly in Focus

• Treasuries have been lightly bid in very latest trading but broadly speaking have pared gains seen with the Asia open to leave them towards the low end of yesterday’s range. 
• The intraday sell-off is supported by a broader risk-on theme including higher oil and equity futures. 
• The Canadian government intervened late yesterday to move towards resuming rail activity that had started to significantly disrupt US-Canadian supply chains. 
• BoJ Governor Ueda overnight noted that the current policy rate is far below likely neutral rates. If the outlook unfolds as expected, more policy adjustments are likely.
• Fed Chair Powell’s Jackson Hole is the main event today. 
• Cash yields sit just 0.5-1bp lower the day, and 2s10s at -15bps is within recent ranges. 
• TYU4 is slightly higher 113-12+ (+ 03) but remains close to yesterday’s low of 113-05+. That low saw a move away from the post FOMC minutes high of 114-01 but the trend structure is still deemed as bullish with resistance at 114-03 (Aug 6 high). 
• Data: New home sales Jul (1000ET), KC Fed services Aug (1100ET)
• Fedspeak: Bostic (0800ET, 0900ET), Powell (1000ET), Harker (1100ET), Goolsbee (1230ET, 1345ET, 1415ET) – see STIR bullet

STIR: Powell in Focus, Other Fedspeak Mostly Repeats

• Fed Funds implied rates hold close to yesterday’s highs ahead of Powell’s Jackson Hole speech. The 97bp of cuts to year-end compares with 106bp seen briefly after Wednesday’s FOMC minutes. 
• Cumulative cuts from 5.33% effective: 31.5bp Sep, 63bp Nov, 97bp Dec, 123bp Jan and 183bp Jun.
• There are various Fed speakers scheduled for media appearances either side of Powell but we have heard from all of them recently. 
• Bostic (’24) on Aug 15 was open to a cut in September and more broadly noted “evidence of accelerating weakness in labor markets may warrant a more rapid move, either in terms of the increments of movement or the speed at which we try to get back” [to neutral rates]).
• Harker (non-voter) told MNI yesterday he would support the Fed starting “methodical” cuts now with the speed and size to depend on the data. He deemed large downward revisions to payrolls growth in the twelve months to March as largely expected, and also expected the unemployment rate to rise further this cycle (peaking “somewhere below 5%”) but it wouldn’t be concerning if other labor market indicators stay strong. 
• Goolsbee (’25 voter) has been cementing his position as one of the most dovish on the FOMC. He said Aug 16 that he’s seeing some leading indicators of recession as flashing warnings and warned that when the labor market starts to turn, it tends to worsen fast. 
  • 0800ET – Bostic on CNBC
  • 0900ET – Bostic on BBG TV
  • 1000ET – Powell at Jackson Hole
  • 1100ET – Harker on BBG TV
  • 1230ET – Goolsbee on CNBC
  • 1345ET – Goolsbee on Fox Business
  • 1415ET – Goolsbee on BBG TV

CANADA: Government Intervenes In Rail Strikes

• Canada’s two largest railways, CN and CPKC, are preparing to restart operations after the government intervened late yesterday to try and end a dispute that had seen strikes start just after midnight Ottawa time on Thursday. 
• Labor Minister MacKinnon has asked the Canadian Industrial Relations Board to impose binding arbitration on CN, CPKC and the Teamsters union – the arbitrator’s decision would be final, effectively ending the dispute. 
• He has also asked the Board to impose a back-to-work order, with the railways required to use existing collective agreements until new deals are in place.
• MacKinnon assumes the trains will be running “within days”. The union and company officials are scheduled to meet the Board on Friday morning. CN said it would end its lockout on Thursday at 1800ET whilst CPKC said it was preparing to restart but further details will be provided once it receives the CIRB’s order. 
• Whilst the order came only 17 hours after strikes began, a sign of the extent of pushback from a range of industries in both Canada and the US, damage has nevertheless been done with some trade routes adjusted ahead of time. Longer-term reputational damage is exacerbated by the dispute coming close to last July’s major port strikes and with potential smaller port strikes in Vancouver this year still on the cards. That's on top of, but of less industrial significance, potential for more than 5,400 Air Canada pilots to go on strike from mid-Sep. 

FOREX: Yen Paring Gains Going Into the US Session

• The dollar traded in the red overnight and into the European session, as market participants await on the main event for the day, Fed Powell and BoE Bailey at Jackson hole, although we could get disappointed with plenty more important data releases ahead of the next Fed meeting.
• The yen has again seen a volatile session, over 100 pips range overnight against the greenback on the back of hawkish comments from BoJ's Ueda.
• But the yen is now coming under some pressure as we head into the US session, at session low against EUR, GBP and the AUD.
• Market participants are also closely watching cable this morning, with the 2023 high of 1.3142 just 5 pips away, this was also the highest print since April 2022.
• Above the 2023 high, would open to 1.3193 2.236 proj of the Apr 22 - May 3 - 9 price swing.
• Looking ahead, all eyes will be on Powell and potential comment on a weakening labour sector, and hints for the September meeting.

EQUITIES: Eurostoxx 50 Futures Hold Onto Latest Gains

Eurostoxx 50 futures have traded higher this week and the pair is holding on to its latest gains. The contract has pierced the 50-day EMA, at 4870.23. An extension higher would undermine the recent bearish theme and highlight a stronger reversal. This would open 4951.00 next, the Jul 31 high. For bears, a reversal lower would refocus attention on the bear trigger at 4494.00, the Aug 5 low. A bullish theme in S&P E-Minis remains intact and the contract has traded higher this week. Price has cleared resistance at 5600.75, the Aug 1 high and this signals scope for an extension towards key resistance and the bull trigger at 5721.25, the Jul 16 high. A break would resume the primary uptrend. On the downside, support to watch lies at 5487.03, the 50-day EMA. A clear break of it is required to instead highlight a potential bearish threat.

COMMODITIES: This Week's Fresh Cycle Highs Reinforces Bullish Conditions in Gold

WTI futures have been unable to hold on to recent gains and the contract has traded lower this week, extending the latest bearish reversal. The recent move down exposes key support at $70.88, the Aug 5 low and the bear trigger. A break would resume the downtrend that started Apr 12. On the upside, initial resistance to watch is $75.04, the 20-day EMA. Key short-term resistance has been defined at $78.54, the Aug 12 high. Gold remains in a bull-mode condition and this week’s fresh cycle high reinforces current conditions. The recent breach of resistance at $2483.7, the Jul 17 high, confirmed a resumption of the primary uptrend. Note that moving average studies remain in a bull-mode set-up and this continues to highlight a dominant uptrend. The focus is on a climb towards $2536.4 next, a Fibonacci projection. Initial support to watch lies at $2455.9, the 20-day EMA.

MNI (LONDON)

Date	GMT/Local	Impact	Country	Event
23/08/2024	1230/0830	*	CA	Quarterly financial statistics for enterprises
23/08/2024	1230/0830	**	CA	Retail Trade
23/08/2024	1230/0830	**	CA	Retail Trade
23/08/2024	1400/1000	***	US	New Home Sales
23/08/2024	1400/1000		US	Fed Chair Jerome Powell
23/08/2024	1400/1000	***	US	US Fed Chair Speech
23/08/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly
23/08/2024	1900/2000		GB	BOE's Bailey Speech at Jackson Hole
24/08/2024	1625/1825		EU	ECB's Lane in panel at Jackson Hole
25/08/2024	1500/1700		EU	ECB's Cipollone in panel at the Rimini Meeting